Q3 2023 Cronos Group Inc Earnings Call
Okay.
Good morning, My name is Valerie and I'll be your conference operator today I would like to welcome everyone to Kronos 2023 third quarter earnings Conference call. Today's call is being recorded at this time I'd like to turn the call over to Shayne Laidlaw Investor Relations. Please go ahead.
Speaker 1: Good morning, my name is Valerie and I'll be a conference operator today. I would like to welcome everyone to Cronus 2023 third quarter earnings conference call. Today's call is being recorded. At this time of the day, let's turn the call over to shame laid law, invest in relations. Please go ahead.
Thank you Valerie and thank you for joining us today to review Kronos is 2023 third quarter financial and business performance today I'm joined by our Chairman President and CEO, Mike Ornstein, and our CFO James home.
Speaker 2: Thank you, Valerie, and thank you for joining us today to review Cronus' 2023 Third Quarter Financial and Business Performance. Today, I'm joined by our Chairman, President and CEO , Mike Hornstein and our CFL James Homes. Cronus issued a news release announcing our financial results this morning, which is filed on our Edgar and Cedar profile. This information, as well as the prepared remarks, will also be posted on our website under Investor Relations.
<unk> issued a news release announcing our financial results. This morning, which is filed on our Edgar and SEDAR profile. This information as well as the prepared remarks will also be posted on our website under Investor Relations before I turn the call over to Mike. Let me remind you that we may make forward looking statements and refer to non-GAAP financial measures. During this call. These forward looking statements are based on management's current expectations and assumptions.
Speaker 2: Before I turn the call over to Mike, let me remind you that we may make for-looking statements and refer to non- GAAP financial measures during this call. These for-looking statements are based on management's current expectations and assumptions that are subject to recent uncertainties that could cause actual results to differ materially from those projected in the for-looking statement.
They are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward looking statements.
Speaker 2: Vector that could cause actual results to different material from expectations are detailed in our earnings materials and our SEC filing that are available on our website. But which any forward looking statements made during this call are qualified in their entirety. Information about non- GAAP financial measures, including recommendations to USGAP, can also be found in the earnings materials that are available on our website.
That could cause actual results to differ materially from expectations are detailed in our earnings materials in our SEC filings that are available on our website by which any forward looking statements made during this call are qualified in their entirety information about non-GAAP financial measures, including reconciliations to U S. GAAP can also be found in the earnings materials that are available on our website last week will be made.
Speaker 2: Lastly, we will be making statements regarding market share information throughout this conference call. And unless otherwise stated, all market share data is provided by High Fire. We will now make prepared remarks and then we will move into a question and answer session. With that, I'll pass over to Cornstead's Chairman, President and CEO , Mike Gornstein. Thank you.
These statements regarding market share information throughout this conference call and unless otherwise stated all market share data is provided by high fire will now make prepared remarks, and then we'll move into our question and answer session with that I'll pass it over to <unk>, Chairman, President and CEO Michael Weinstein.
Thank you Shane and good morning, everyone.
I want to start by addressing the horrifying and is thinkable terrorist attacks in Israel in early October.
Speaker 3: I want to start by addressing the horrifying and despicable terrorist attacks in Israel and early October .
Speaker 3: Our thoughts remain with all victims. Their loved ones and all Israelis as they fight to be free from terror. Today, in the-
Our thoughts remain with all victims their loved one and all Israelis as they fight to be free from care today and in the future for.
Speaker 3: Grownals continue to prioritize the safety of our Israeli team and their families, and it will do everything we can to support them and our patients during the...
<unk> continues to prioritize the safety of our Israeli team and their families and we will do everything we can to support them and our patients during this time.
Speaker 3: While our hearts are with our Israeli team, we have not lost focus on growing existing markets, we're appropriate, and opening new international markets, such as Germany and Australia.
While our hearts are with our Israeli team, we have not lost focus on growing in existing markets, where appropriate and opening new international markets, such as Germany and Australia.
Speaker 3: James will go into more detail on the financial results during his remarks, but I want to comment on the wins this quarter.
James will go into more detail on our financial results during his remarks, but I want to comment on the win this quarter.
We grew revenue by 22% year over year, and 30% sequentially to $24 $8 million propelled by 40% year over year growth in Canada, driven by strength in three year olds flowers and edible.
Speaker 3: We grew revenue by 22% year over year, and 30% sequentially to 24.8 million, propelled by 40% year over year growth in Canada, joined by strength in pre-year-olds, flower, and ed.
Speaker 3: Adjusting our gross margin for an inventory write down, associated with transitioning out of our winter fake facility, the gross margin would have been approximately 19% in the quarter. A strong 260 basis point to Quential Improvement.
Adjusting our gross margin for an inventory write down associated with transitioning out of our Winnipeg facility. The gross margin would've been approximately 19% in the quarter, a strong 260 basis point sequential improvement.
Speaker 3: We continue to have an industry-leading balance sheet, with a cash and short-term investment balance of approximately 840 million.
We continue to have an industry, leading balance sheet with a cash and short term investment balance of approximately $840 million.
The strength of our balance sheet is supported by improved gross margin lower operating expenses robust interest income and improved working capital management.
Speaker 3: Strength of our balance sheet is supported by improved growth margins, lower operating expenses, robust interest income, and improved working capital men.
We intend to build on this momentum for the remainder of the year and into 2024, as we realized P&L efficiencies and additional interest income from our cash and short term investments.
Speaker 3: We intend to build on this momentum for the remainder of the year and into 2024 as we realize PNL efficiencies and additional interest income from our cash and short-term investment.
In September we sent our first order of candidates to our German distribution partner, Kansas, Eva and we are very excited to bring that peace naturals brand back to the German market.
Speaker 3: In September , we sent our first order of cannabis to our German distribution partner, Can Sativa. And we were very excited to bring the Peace Natural Brand back to the German Mark.
Speaker 3: Cancetiva is one of the leading distributors of medical cannabis in Germany and has the network of approximately 2000 high volume cannabis focused pharmacies that currently supply around 300,000 patients.
Kansas City that is one of the leading distributors of medical cannabis in Germany and has a network of approximately 2000 high volume candidate focused pharmacy at currently supply around 300000 patients.
Re entering the German market, which has about 83 million people a significant milestone for US we are working closely with the Kansas team sales team who are excited about selling this brand in the market.
Speaker 3: re-entering the German market, which has about 83 million people, the significant milestone.
Speaker 3: We are working closely with the Cancer TV sales team who are excited about selling this brand in the market.
Traction in the early innings of our launches strong and Kansas Tivo has already received significant orders at peace Naturals.
Speaker 3: Traction the early innings of relaunches strong and Cancetiva has already received significant orders with teeth naps.
Speaker 3: Our goal is to continue to expand our reach and brand awareness in Germany, with the help of Cancetiva to establish our Peace Natural brand at the top medical brand, similar to the brand reputation in other international.
Our goal is to continue to expand our reach and brand awareness in Germany with the help of Kansas Eva to establish our peace Naturals brand at the top medical brands similar to the brand's reputation in other international markets.
Speaker 3: Reestablishing Thronos and our Peace Natural's brand of German market will position us to capitalize on this growing opportunity with additional upside potential from future legislative changes, including in the event the German government rescheduled cannabis and no longer labeled cannabis as an archive.
Reestablishing thrown us and our peace Naturals brand in the German market will position us to capitalize on this growing opportunity with additional upside potential from future legislative changes.
<unk> in the event, the German government rescheduled candidates and no longer labels candidates as narcotics.
Turning to Australia, we are in the process of filing our first order to mature with the first shipment to Australia plans to go out later this month.
Speaker 3: Turning to Australia, we are in the process of filing our first order to Vettora, with the first shipment to Australia planned to go out later this month.
As a reminder, earned approximately 10% of the common shares of <unk>.
Speaker 3: As a reminder, Chronos owned the approximately 10% of the common shares of ITOR.
Speaker 3: In addition to forming a commercial relationship with Vittora, we also received a cash dividend of approximately 346,000 Q3, making us the second dividend received from Vittora.
In addition to forming a commercial relationship with mature. We also received a cash dividend of approximately 346000 in Q3, making us the second dividend received from Victoria.
<unk> is the market, leading prescriber patient pharmacy and supplier online platform.
Speaker 3: A tour is the market leading for Scriber, patient, pharmacy, and supplier online flat.
Speaker 3: focused on creating medicinal cannabis products and digital health solutions that connect and strengthen the cannabis ecosystem in the Australian medical cannabis market.
Focused on creating medicinal cannabis products and digital health solutions that connect and strengthen the cannabis ecosystem and the Australian medical cannabis market.
Speaker 3: The Australian market has seen medical cannabis patient approval to the authorized prescribed repath away increased by over 120% year-over-year to approximately 300,000 approvals as of the first half of 2023. According to the Australian government-
The Australia market has seen medical cannabis station approvals to the authorized prescriber pathway increased by over 120% year over year to approximately 300000 approvals as of the first half of 2023.
According to the Australian governments Department of health.
Expanding in this market is a top priority for front of us and we look forward to providing our partners at mature with high quality candidates products.
Speaker 3: Spanding in this market is a top priority for front-end. And we look forward to providing our partners at Vitura with high-quality cannabis products.
Turning to Canada during the third quarter, we continued to execute our plan to create a robust operating boiler products highlighted by new launches and strong market performance.
Speaker 3: Turning to Canada, during the third quarter, we continue to execute our plan to create a robust offering of borderless products. Highlighted by new launches and strong market performance.
Speaker 3: As of October , finished with the number one brand in the Edible and Flower category, number three invapes, and the number three ranked cannabis brand overall and can.
As of October Spansion was the number one brand in the edible and flower categories number three and base and the number three ranked candidates brand overall in Canada.
Speaker 3: Finish Edibles accounted for 17.9% of the market's retail sales in Q3 remaining the market leader and edible.
This edibles accounted for 17, 9% of the markets retail sales in Q3 remained the market leader in edible.
We have an incredible product that continues to launch a new flavor profiles and cannabinoid plant.
Speaker 3: We have an incredible product that continues to launch a new flavor profile and cannabinoid blend. The perfect example of a border
Perfect example of our borderlands scalable products.
Speaker 3: And the third quarter are new with sourced by spinach flavor, 10 lemonade, became the ninth most popular edible and canned.
In the third quarter, our newest salaries by finished flavor pink lemonade became the ninth most popular edible in Canada.
In total we have five edible products and the top 15.
Speaker 3: In total, we have five edible products in the top 15.
And dried flower, we continue to see strong performance.
Speaker 3: finished with the number two brand and dried flower in Q3 with 5.8% market share. And we have three products in the top 15 best selling skewed led by our GMO cookie genetics across various taxes.
<unk> was the number two brand in dried flower in Q3 with five 8% market share and we have three products in the top 15, best selling Skus led by our GMO cooking genetic across various tax items.
Speaker 3: We carried the Q3 strength in October . We were very excited to say that it finished rose to be the number one flower brand in Ken.
We carry the Q3 strength in October and we're very excited to say that Spanish Roes to be the number one flower brand in Canada.
Speaker 3: This achievement is the culmination of years of genetic breeding and best in class cultivation that separate our products from the field.
This achievement is the culmination of years of genetic breeding and best in class cultivation at separate our products in the field.
And the Vape category, we held a four 7% market share in Q3 climbed to number six.
Speaker 3: In the VAT category, we held a 4.7% market share in Q3, climbing to number six.
Speaker 3: Looking at the monthly breakdown, finished rows to be the number five eight brand in September , and even more impressively, grew to be number three in October .
Looking at the monthly breakdown finish Roes to be the number five brand in September and even more impressively grew to be number three in October.
Speaker 3: We've done a lot of work on our vape portfolio over last year, and it's great to finally see these strong results in the market.
We've done a lot of work on our VA portfolio over last year and it's great to finally see the strong results in the market.
Speaker 3: Our one-gram blueberry dynamite and our new 1.2 gram format, which have been flying off the shelf, have helped us gain share in the vape category.
Our one gram blueberry dynamite and our new one two gram format, which have been flying off the shelves have helped us gain share in the vape category.
Speaker 3: We will build on this momentum in the remainder of 2023 and into 2024 with a continued push to include flavor forward profile and rare cannabinoids in our base.
We will build on this momentum in the remainder of 2023 and into 2024 with a continued push to include flavor forward profile and rare cannabinoid and our base.
This year, we launched several new offerings to bolster bolster the spinach payroll portfolio, including Sonic Lemon fuel <unk> and three new infused Bureau offerings, Pink lemonade teach punch and strawberries lurking.
Speaker 3: This year, we launched several new offerings to bolster the Spinach Fereo portfolio, including Sonic Lemon Fuel, three pack Fereo and three new infused Fereo offerings. Pink Lemonade, Peach Punch, and Strawberry Slurker.
Speaker 3: In Q3, Spinach rose to be the number seven market share ranked pre-rowed brand, a significant improvement from our 2022 position, powered by our number one ranked flower as a base for our pre-row.
In Q3 finish Roes to be the number seven market share ranked <unk> brands, a significant improvement from our 2022 position powered by our number one ranked flower as a base to our payroll.
Speaker 3: We can grow in this category and our pre-rolls are already receiving additional attention from consumers and in...
We can grow in this category and our payrolls are already receiving additional attention from consumers and industry.
In October our Spanish brand won best payroll at the Grub Awards for our spinach fully charged atomic GMO in future periods.
Speaker 3: In October , our Spinach brand won Best Pre-Roll at the Grove Awards for our Spinach Fully Charged Atomic GMO and Fuse Pre-Roll.
Speaker 3: The Grow Up Award celebrates excellence in the cannabis industry, recognizing outstanding achievements and innovation in various cannabis-related categories.
The grow bored celebrate excellence in the cannabis industry, recognizing outstanding achievements in innovation and various cannabis related categories.
Speaker 3: We are incredibly proud to be recognized by the Grobe Award in this category.
We are incredibly proud to be recognized by the Grub Award in this category.
Winning with our payroll is particularly important for us as we overhauled our portfolio earlier this year to ensure offerings enhance and elevate the consumer experience.
Speaker 3: Winning with our pre-roll is particularly important for us, as the overall door for Polaro earlier this year, to ensure our offerings enhance and elevate the consumer experience.
Speaker 3: We continue to invest our resources and expertise in expanding our innovation pipeline and look forward to bringing new high-quality pre-rolls to market in the coming years.
We continue to invest our resources and expertise and to expanding our innovation pipeline and look forward to bringing new high quality fuel to market in the coming year.
In October we launched our much anticipated THC vision focused products in the vape and gummy category.
Speaker 3: In October , we launched our much-anticipated THCV focus product in the vape and gummy categories.
Speaker 3: The spinach fields, poultry, THC and THCVV and gummies are designed to provide a boosted and elevated house.
The spinach fields full tilt THC in CATV and gummies are designed to provide a boost at an elevated high.
Speaker 3: Plan to launch a THC-V infused pre-roll later in Q4, adding an additional offering under our robust pre-roll portfolio.
We plan to launch <unk> infused Piero later in Q4, adding an additional offering under our robust for your own portfolio.
Speaker 3: We're incredibly excited about the possibilities of THCV. We put a lot of work in these proprietary formulations that offer unique and differentiated experience. We know consumers have been eager to try.
We're incredibly excited about the possibilities in CATV, we put a lot of work into these proprietary formulation that offer a unique and differentiated experience. We know consumers have been eager to try.
These field rare cannabinoid infused products have helped bolster at gummy vape and for your offerings.
Speaker 3: Finish-field, rare-conabinoid and fused product have helped chronicles bolts with gummy, vape, and fereo offering under the Finish brand umbrella.
Under this finish brand umbrella.
This field is a leading brand in Canada with a lineup featuring American Avenue CDN, CPG CVC and now Tacb many of which are made using our proprietary fermentation methods.
Speaker 3: Spinach Fields is a leading brand in Canada with a lineup featuring rare cannabinoids, CBN, CBG, CBC, and now THCV, many of which are made using our proprietary fermentation method.
Speaker 3: Earlier this year, we mentioned our intentions to bring our award winning cannabis brand, Lord Jones, to the Canadian Adult Youth Mark.
Earlier this year, we mentioned our intention is to bring our award winning candidates brand Lord Jones, the Canadian adult use market.
Speaker 3: In November , our first product under this brand launched, and we're thrilled to bring the Lord Jones brand back to its roots with bold and elevated THC focus products.
In November our first product under this brand launched and we're thrilled to bring the Lord Jones brand back to its roots, the bold and elevated THC focused products.
The Lord Jones brand is inspired by the possibilities of candidates and we plan to leverage its brand to explore creative in unexpected ways to bring candidates to the world and shape the category future.
Speaker 3: The Lord Jones brand is inspired by the possibilities of cannabis, and we plan to leverage this brand to explore creative and unexpected ways to bring cannabis to the world and shape the category.
Lord Jones products have been artfully crafted scientific precision to bring the purest products and bolder flavors that deliver an unparalleled candidate experience.
Speaker 3: Lord Jones products have been artfully crafted with scientific precision to bring the purest products and boldest flavors that deliver an unparalleled cannabis experience.
We can't wait for adult consumers to go above and beyond with us and try these new products.
Speaker 3: We can't wait for adult consumers to go above and beyond with us and try these new products.
The first products under the Lord Jones brand in Canada is has fusions payrolls.
Speaker 3: The first product under the Lord Jones brand in Canada is Hash Fusions pre-roll.
Speaker 3: The popularity of hash products and premium pre-roll is increasing amongst adult consumers.
The popularity of house products and premium for Euro is increasing amongst adult consumers.
Speaker 3: Hash is currently the most popular solventless infusion and is the second most popular infusion overall in the pre-roll category.
Cash is currently the most popular solvent less infusion into the second most popular infusion overall in the <unk> category.
Speaker 3: These hash fusion pre-rolls go beyond delivering an elevated true-to-plant consumption experience.
These have fusion three year old go beyond delivering an elevated true to plant consumption experience.
These three roles are crafted with an optimized ratio of premium high potency flower and complementary solvent less ice water hash, which preserves about natural surfing.
Speaker 3: These pre-rolls are crafted with an optimized ratio of premium high potency flower and complimentary solventless ice water hash, which preserves the buds natural terpene.
Speaker 3: fitted with a reusable ceramic tip to help pull the smoke.
Fitted with a reusable ceramic chip to help fuel the smoke.
This new product has been extensively researched and sensory tested to deliver a smoother experience featuring bold flavors.
Speaker 3: This new product has been extensively researched and sensory tested to deliver a smoother experience featuring bold flavors.
Speaker 3: Later this month, we'll also launch a Lord Jones Live Resin Vape, which will feature sought-after cultivars and deliver a flavorful, full-spectrum live resin high.
Later this month, we'll also launch a Lord Jones <unk> revenue base, which will feature sought after cultivars and deliver a flavor full spectrum <unk> hi.
Speaker 3: Our next highly anticipated edible that was researched and developed over multiple years, the Lord Jones Chocolate Fusion, will launch early in 2024.
Our next highly anticipated edible that was researched and developed over multiple years, the Lord Jones Chocolate fusion will launch early in 2024.
Speaker 3: In sensory panel testing, these products receive even more buzz in their category than our award-winning and number one-ranked spinach sourdough.
And sensory panel testing these products receive even more buzz in their category and our award winning a number one ranked that is Sarah gummies.
These edibles will feature Mouthwatering, multi textured artisanal chocolate and high quality ingredients in three flavors.
Speaker 3: These edibles will feature mouth-watering, multi-textured, artisanal chocolate and high-quality ingredients in three flavors.
Speaker 3: Cookies and Cream, Dazzleberry Pop, and Salted Caramel Crunch.
Cookies, and cream dazzled, aerie pop and salted caramel crunch.
Turning to Kronos broke out their performance in cultivation and continues to be strong.
Speaker 3: Turning to Kronos Groko, their performance and cultivation continues to be strong.
Speaker 3: BroCo reported a preliminary unaudited revenue of approximately $6.2 million from non-Kronos customers in the third quarter.
Broker reported us preliminary unaudited revenue of approximately $6 2 million from non front end customers in the third quarter.
Speaker 3: Additionally, the credit facility that chronos previously provided GROCO currently has 69.4 million outstanding, following the principal repayment of 1.1 million by GROCO and QC.
Additionally, the credit facility. The Kronos previously provided <unk> currently has $69 4 million outstanding following the principal repayment of $1 1 million by <unk> in Q3.
Speaker 3: In addition, Groco made a $1.2 million interest payment in Q3.
In addition, broker made a $1 2 million interest payment in Q3.
The solid financial performance of broke out yielding equity pickup interest payments and loan payback to Kronos is a vital component of our overall financial picture.
Speaker 3: A solid financial performance of Groco, yielding equity pickup, interest payments, and loan payback to Kronos, is a vital component of our overall financial picture.
Speaker 3: In Israel, our team impressively achieved sequential growth in the third quarter despite relatively stagnant patient growth and continued competitive pricing.
In Israel, our team impressively achieved sequential growth in the third quarter, despite relatively stagnant patient growth and continued competitive pricing pressures.
Speaker 3: Despite the war and challenging situation, our team continues to execute and market, maintaining distribution and launching new products.
Despite the war and challenging situation our team continued to execute in market, maintaining distribution and launching new products.
Speaker 3: Still, the bigger priority in the near term is ensuring we do what we can for our Israeli employees, their families, and the broader Israel population.
Still the bigger priority in the near term is ensuring we deal we can for Israeli employees their families and our broader is real population.
Turning to the U S market, we were pleased with the report of HHS his recommendation to the DEA, suggesting that candidates be reclassified as a schedule III drug under the controlled substances Act.
Speaker 3: Turning to the US market, we repeat as reports of HHS's recommendations to the DEA, suggesting that cannabis be reclassified as a scheduled three drug under the controlled substance attack.
Reclassification would signify a significant shift away from candidates with current schedule one drug status.
Speaker 3: Reclassification would signify a significant shift away from cannabis's current schedule one drug status.
Schedule III substances are recognized and offering potential therapeutic benefit and can be obtained with a prescription.
Speaker 3: Schedule three substances are recognized as offering potential therapeutic benefits and can be obtained with a prescription.
Speaker 3: Regardless of the specifics of how federal regulation and commercialization of cannabis products evolved, rescheduling would be a massive step for U.S. cannabis.
Regardless of the specific of how federal regulation in commercialization of cannabis products evolve rescheduling it would be a massive step for U S Canada.
Speaker 3: Now to record it in the year, we are well on our way achieving our previously guided 20 to 25 million cost savings in 2020.
Now three quarters in the year, we are well on our way to achieving our previously guided 20% to $25 million of cost savings in 2023.
And we still anticipate saving an incremental $10 million to $15 million in 2024, as we fully realize the savings from our actions taken this year.
Speaker 3: And we still anticipate saving an incremental 10 to 15 million in 2024 as we fully realize the savings from our actions taken this year.
Speaker 3: This quarter successes have resulted in significant top line growth and operating expense savings, culminating in a substantial improvement in cash flow from operations.
This quarter successes have resulted in significant topline growth and operating expense savings, culminating in a substantial improvement in cash flow from operation, which better positions us to assemble a portfolio of border with products with strategic infrastructure and global partnerships.
Speaker 3: better positions us to assemble a portfolio of borderless products with strategic infrastructure and global partners.
The combination of these efforts and industry leading balance sheet.
Speaker 3: Combination of these efforts in industry leading balance sheet sets us up well to execute in any mark
Well to execute in any market.
Speaker 3: With that, I would like to pass it on to James to take you through our finance.
With that I would like to pass it onto James to take you through our financials.
Speaker 4: Thanks Mike, and good morning everyone. I will now review our third quarter 2023 results in relation to the prior year period. Thank you.
Thanks, Mike and good morning, everyone.
I will now review, our third quarter 2023 results in relation to the prior year period.
Speaker 4: The company reported consolidated net revenue in the third quarter of 24.8 million, a 22% increase from the prior year, and up 30% from the second quarter.
The company reported consolidated net revenue in the third quarter of $24 8 million or 22% increase from the prior year and up 30% from the second quarter.
Speaker 4: Constantly currency consolidated net revenue increased by 27% to 26%
Constant currency consolidated net revenue increased by 27% to $26 million.
Speaker 4: The revenue increase was primarily driven by higher cannabis flower and extract cells in Canada and the initiation of cannabis shipments to Germany, partially offset by lower cannabis flower cells in Israel due to competitive activity, relatively stagnant patient growth and political unless.
The revenue increase was primarily driven by higher cannabis flower and extract sales in Canada, and the initiation of cannabis shipments to Germany, partially offset by lower cannabis flower sales in Israel due to competitive activity relatively stagnant patient growth and political out of less.
Speaker 4: Reported consolidated growth profit in the third quarter was 4 million, equating to a 16% growth margin, representing a 0.8 million improvement from the prior year. Adjusted for the 0.7 million inventory right down associated with the wind down activities at chrono's fermentation, gross margin would have been approximately 19%. The increase was primarily driven due to higher cannabis flower and extract cells in Canada, lower cannabis biomass cost, and continues supply chain optimization.
Reported consolidated gross profit in the third quarter was $4 million equating to a 16% gross margin representing a <unk> 8 million improvement from the prior year adjust.
Adjusted for the <unk> 7 million inventory write down associated with the wind down activities at Kronos fermentation gross margin would've been approximately 19%.
The increase was primarily driven due to higher cannabis flower and extract sales in Canada, lower cannabis biomass cost and continued supply chain optimization.
Speaker 4: We have displayed solid sequential progression on the Gross Margin line this year from Q1 at 15% to Q2 at 16%, and Q3 at 19% Gross Margin on an adjusted base.
We have displayed solid sequential progression on the gross margin line. This year from Q1 at 15% to Q2 of 16% in Q3 and 19% gross margin on an adjusted basis.
Speaker 4: With this, you can see encouraging signs of improvement and stability. And we intend to build up this momentum into 2024.
With this you can see encouraging signs of improvement and stability and we intend to build off this momentum into 2024.
Speaker 4: Consolidated adjusted EBITDA on the third quarter with negative 15.2 million, representing a 3.3 million improvement from the prior year.
Consolidated adjusted EBITDA in the third quarter was negative $15 2 million, representing a $3 3 million improvement from the prior year.
Speaker 4: The improvement was primarily driven by a decline in general and administrative and research and development expenses. And in a-
The improvement was primarily driven by a decline in general and administrative and research and development expenses and an improvement in gross profit.
As previously mentioned, we increased our target earlier this year to reduce operating expenses by 20% to $25 million in 2023, and anticipate capturing an incremental $10 million to $15 million in full year savings in 2024, following the significant cost savings initiatives, we implemented in Q3.
Speaker 4: Turning to the balance sheet, the company ended the quarter with approximately 140 million in cash and short-term investments, which is down by about 1 million from the second quarter. In addition to maximizing the return on our cash, we received an interest payment on our Grotco's Senior Secured Lone of 1.2 million, and a principal repayment of 1.1 million, for total cash paid by Grotco to chrono to 2.3 million in que...
Turning to the balance sheet. The company ended the quarter with approximately $140 million in cash and short term investments, which is down by about $1 million from the second quarter. In addition to maximizing the return on our cash we received an interest payment on our <unk> senior secured loan of $1 2 million and a principal repayment of $1 1 million for total cash paid by <unk>.
Out of Kronos, a $2 3 million in Q3, having.
Speaker 4: Having the best balance sheet in the cannabis industry enables us to take calculated strategic bets while we remain steadfastly focused on reducing cash burn.
Having the best balance sheet in the cannabis industry enables us to take calculated strategic bets, while we remain steadfastly focused on reducing cash burn.
Moving to the cash flow statement cash flow from operations was negative approximately 180000 reps.
Speaker 4: Moving to the cash flow statement, cash flow from operations was negative approximately 180,000, representing a substantial improvement. We will continue to work to improve further and we create a fully self-sustaining operation.
Representing a substantial improvement we will continue to work to improve further as we create a fully self sustaining operation free.
Speaker 4: Free cash flow defined as operating cash flow left CAPEX with only negative 510,000. Another great achievement.
Free cash flow defined as operating cash flow less capex with only negative 510000, another great achievement.
Speaker 4: We have many wins to point to. Market share gains, strong top line growth, steady growth margin improvement, op-ex reduction, cash balance optimization, and improving cash flow from operate.
We have many went to point to market share gains strong topline growth steady gross margin improvement opex reduction cash balance optimization and improving cash flow from operations.
Speaker 4: Looking back on those improvements, I share and like the confidence in the trajectory of the business and our preparedness for entry into new markets as they become available. With that, I'll turn it back to my-
Looking back on those improvements I share in Mike's confidence in the trajectory of the business and our preparedness for entry into new markets as they become available with that I'll turn it back to Mike.
Thank you James.
Speaker 3: Our brands are winning globally thanks to all the hard work for more employees to bring best in class, borderless products to more.
Our brands are winning globally. Thanks to all the hard work from our employees to bring best in class cordless products to market.
Speaker 3: Spinach brand holds the top 10 market share position in Canada and all categories of participants in, which are flower, pre-year-old, Davidson, Edible.
Our Spanish brand holds a top 10 market share position in Canada, and all categories. It participates in which our flower three year old Vapes and edibles.
We are confident that as regulations change we will be among the best positioned cannabis companies to capture additional market share in any market.
Speaker 3: We are confident that its regulations change, we will be among the best position cannabis companies to capture additional market share and any market.
Before getting into questions I want to level set what is under the Kronos umbrella and where things stand today.
Speaker 3: Before getting into questions, I want to level that what is under the chronosom brahlock and where things stand today.
Speaker 3: and close the quarter with approximately 849 in cash in short term investment and zero debt.
We closed the quarter with approximately $840 million in cash and short term investments and zero debt.
Speaker 3: We generated over 13-min interest income in Q3, and we anticipated generating approximately 15-min interest income in Q4.
Generated over 13 million of interest income in Q3, and we anticipate generating generating approximately $15 million in interest income in Q4.
Speaker 3: In Canada, our Spanish brand has the following market share range for October 2023.
In Canada, our Spanish brand as a following market share range for October 2023.
Speaker 3: Overall, it finishes the number three cannabis brand, including number one in Edible, number one in Flower, number three in Vates, and number seven in Creerol.
Overall expansion the number three candidates brand, including number one in edible number one in flower number three and base and number seven pharaohs.
Speaker 3: We've brought the Lorddrone brand to the Canadian Adult Youth cannabis market. The products we know can win.
We have brought the Lord Jones brand in the Canadian adult use cannabis market products, we know can win.
Speaker 3: We have a leading medical brand, Peace Natural in Israel, which posted 5.7 million in net revenue and keeps-
We have a leading medical brand peace naturals in Israel, which posted $5 7 million in net revenue in Q3.
This quarter, we shipped candidates to Germany, and intend to ship to Australia in November extending our global reach.
Speaker 3: This quarter, we shift cannabis to Germany and intend to shift to Australia in November , extending our global reach.
We have a six 3% stake in pharma, Ken one of the largest private U S. Msos currently on our books of $49 million.
Speaker 3: We have a 6.3% stake in farm again, one of the largest private US MSOs. Currently on our books for $49 million.
We own 50% of the equity in front us broke out which is profitable and <unk> paid a $2 3 million in principal and interest payments in Q3.
Speaker 3: We own 50% of the equity in front of Scroco, which is profitable, and Groco paid as 2.3 million in principal and interest payments in Q3. On now standing loan balance of 69.4 million.
Outstanding loan balance of $69 4 million.
Speaker 3: We have an approximate 10% stake in Vitora, a leading medical cannabis company in Australia, and our books for 13 million. And finally, we have an exclusive partnership with Altria on a global basis.
We have an approximate 10% stake in visa Europe, a leading medical cannabis company in Australia on our books for $13 million and finally, we have an exclusive partnership with Altria on a global basis.
At the close of the market yesterday, Kronos traded at a market cap of approximately $730 million and an enterprise value of approximately negative $110 million.
Speaker 3: At the close of the market yesterday, Chronos created a market gap with approximately 730 million and an enterprise value of approximately negative 110 million.
Speaker 3: We stabilize our cash balance and drastically improve our cash flow trajectory, making it one of the best position cannabis companies to take advantage of new market growth opportunities. With that,
We have stabilized our cash balance and drastically improved our cash flow trajectory, making us one of the best positioned candidates companies to take advantage of new market growth opportunities.
With that I'll open the line for questions.
Yes.
Speaker 1: Thank you. Ladies and gentlemen, would like to ask a question, please press star 11 on your telephone. Again, to ask a question, please press star 11. We do ask that you please limit yourself to one question and a follow up. Thank you. One moment for our first question.
Thank you, ladies and gentlemen, I would like to ask a question. Please press star one on your telephone again to ask a question. Please press star one one we do ask that you. Please limit yourself to one question and a follow up. Thank you one moment for our first question.
Our first question comes from the line of John <unk> of CIBC. Your line is open.
Speaker 1: Our first question comes from the line of John Jempero of C.I.B.C. Yolanda Zob.
Thank you good morning, I wanted to start on Lord Jones, it's exciting to see that that brand launch in Canada, I presume it will be positioned as a premium product. So I wonder in the research you're doing do you see more openness or willingness among consumers to shop within.
Speaker 5: Thank you, good morning. I wanted to start on Lord Jones, because I didn't see that brand launch in Canada. I presume it'll be positioned as a premium product. So I wonder in the research you're doing, do you see more openness or willingness among consumers to shop within premium rather than just focusing on THP per dollar?
Premium rather than just focusing on THC per dollar.
Thanks, John.
Speaker 3: Thanks, John . Yeah, that's a great question. Then when we look over all the cadating market, obviously you see value is kind of the largest share. But...
Great question, when we look overall at the Canadian market, obviously, you see value as kind of a largest share but.
Speaker 3: You know, it's a category we think is increasingly challenged, whereas premium, I think, you know, you have an opportunity to really carve out a niche. I think it's a segment that, you know, we can win in, and I think it's more predictable to have durable margins.
As a category, we think is increasingly challenged whereas premium I think.
Do you have an opportunity to really carve out a niche I think it is.
A segment that we can win and I think it's more predictable to have durable margins and when were looking big picture at creating a boarder list product portfolio being able to win in that segment in Canada, where we do think there is room, that's going to translate into other markets a lot easier than something like a value brand.
Speaker 3: And when we're looking big picture at creating a, you know, borderless.
Speaker 3: Product portfolio, being able to win in that segment in Canada where we do think there is room That's going to translate in the other markets a lot easier than something like a value brand would so
So.
Speaker 3: You know, very excited what we can do with the edibles. And they're very differentiated. Excited what we can do with pre-rolls and vapes. And I think you're offering a much different proposition than just simply what's the propensity for dollars.
Very excited what we can do with what the edibles and Theyre very differentiated excited what we can do with pre rolls and base and I think you are offering a much different proposition than just simply what's the potency per dollar.
Okay. That's helpful. Thanks, and then.
My second question more broadly on the market when you look across the Canadian landscape do you see any signs of more rational behavior in this sector and do you get a sense that there is either a greater likelihood of participants exiting the market or a greater likelihood.
Operators behaving more rationally when it comes to pricing.
Speaker 3: Yeah, I don't think much has changed there. I will say I think that you are seeing a lot of access. I don't know that that's necessarily because of, you know, decision making from companies that may be investors who just no longer are feeding losses and, you know, the bankruptcy processes playing out. But I do think that regardless of the reasons you are seeing exits, and I think that will lead to some rationalization. So it's...
Yes, I don't think much has changed there.
I will say I think that you are seeing a lot of exits I don't know that thats necessarily because of.
Decision, making from companies that maybe investors, who just no longer are seating losses and.
Bankruptcy processes playing out.
But I do think that regardless of the reasons you are seeing exits and I think that will lead to some rationalization.
So it's.
Speaker 5: It's just making sure we get to the other side. And for us, focusing on the consumer is the way to do that. And I think the macro environment plays out.
It's just making sure we get to the other side.
For us focusing on the consumer is the way to do that and I think the macro environment plays out.
Understood Alright, Thank you very much I'll pass it on.
Thank you one moment please.
Our next question comes from the line of Vivien as there.
Speaker 1: Our next question comes from the line of Vivian Azer of TD Cowling Elimbs.
Of TD Cowen Your line is open.
Thank you and good morning.
So I was hoping to just start with a housekeeping item. Please.
Speaker 6: So I was hoping to just start with the house keeping item. Please can you just comment on the revenue benefit that you may have realized in the quarter from the selling on board your products?
Comment on the revenue benefit, but you may have realized in the quarter from the sullen onboard yarn products.
Yeah.
Hey, Valerie So this is James.
Speaker 4: Hey Valerie, so this is James. Sorry Vivian, there is minimal benefit from Lord Jones. You'll see that start to pick up and queue for and beyond. So we really anticipate that being a major driver into 20.
Sorry, Vivien there is minimal benefit from Lord Jones, Youll see that start to pick up in Q4 and beyond.
So we really anticipate that being a major driver into 2024.
Understood well then all the more encouraging.
Speaker 6: understood well, then all the more encouraging the growth that you guys saw in the Canadian marketplace, absent that. So my follow up question then would be, you know, given the market term momentum that you guys are seeing across several key categories coupled with price deflation and flower, can we just revisit Gritz margin by product type? So specifically, if you could just dimensionalize how we should think about Gritz margin gaps or, you know, just rank ordering them between flower pre-rolls, dates and edibles.
The growth that you guys saw in the Canadian marketplace absent that so my follow up question on would be given the market share momentum that you guys are seeing across several key categories, coupled with price deflation in flower can we just revisit gross margin by product type. So specifically if you could just debenture lives how we should think about Chris part gross margin gap.
Or just rank ordering them between flower pre rolls data some levels.
Sure.
Speaker 4: Sure. So yeah, our edible is the number one edible is our still the highest margin products, right? And we are working to continually improve those. We do see, I'll just mention the Lord Jones Choco Bites, also being a crede to the overall company margins. Then that's followed by Bates, which we are again working on optimizing that portfolio. We just highlighted the 1.2 grand launches and are steadily taking share in that category.
Our edibles the number one edibles are still the highest margin products right and we are working to continually improve those.
Do see ill just mentioned and the Lord Jones Chaco by also being accretive to the overall company margin.
And then that's followed by base, which we are working on optimizing that portfolio. We just highlighted the $1 two brand launches and are steadily taking share in that category.
Speaker 4: then followed by pre-rolls very closely and again we're working to optimize that structure as we continue to assess the fly chain.
Then followed by a pre rolls very closely.
And again, we're working to optimize that structure as we continue to that supply chain.
Speaker 4: and further optimize where there's opportunity. And then last but not least, flower. And again, still decent margins there, but that is our lowest current category, as you might expect with the current price competition. But all that said, right, our flower is outstanding, still continues to win versus competition and is improving in that category. Perfect.
And further optimize where where there is opportunity and then last but not least flower and again, it's still decent margins there, but that is our lowest current category as you might expect that the current price competition, but all of that said right art flower is outstanding still continues to win versus competition and is improving in that category.
Perfect. Thank you.
Yes.
Thank you.
Layers.
Speaker 1: Again, ladies and gentlemen, if you'd like to ask a question, please press star one morning your telephone.
Again, ladies and gentlemen, I'd like to ask a question. Please press star one on your telephone.
One moment for our next question.
Speaker 1: Our next question comes from a line of Ki Wan Yang of Canacor Genuity, a line of...
Our next question comes from the line of key one Yang of Canaccord Genuity. Your line is open.
Speaker 7: haha ya Thanks for your strongest touch in the world.
Hi. Thank you. Good morning. This is Darren came on behalf of Matt Bottomley.
Speaker 7: So I wanted to kind of really back to what John was saying with regards to the community and adult youth landscape. Last month, the country saw its five-year anniversary of its recreational utilization. And we've been seeing increased media with puts of several licensed producers of the President of Market, given the continued husbands and the states.
So wanted to kind of really back to what John was saying in regards to the Canadian adult use landscape last month, the country saw its five year anniversary of its recreational legalization and Lisa.
Media reports of several licensed producers exiting the markets given the continued headwinds in the space and so on.
Speaker 7: And so I want to ask if you could provide your perspective on this. Have you been seeing decreased level competition on the license to be feelable? And I guess trickling down to pricing has this impactage or ability to price any of your products that I have.
You could provide your perspective on that have you been seeing decrease level of competition on the license producer level and I guess trickling down to pricing has this impacted your ability to price some of your products at a higher point.
Speaker 3: Thanks. I think we have seen the number that are exiting and I think if you look at the overall bankruptcies in Canada, certainly cannabis is towards the top of the list of how many bankruptcies there are. So you are seeing some exits, but also we've had a wave of new companies enter. They just said we're backlogged, so it hasn't been something that's immediate and I think.
Sure. Thanks.
I think we have seen a number that are exiting and I think if you look at the overall bankruptcies in Canada certainly.
Cannabis is towards the top of the list.
How many how many bankruptcies there are.
So you are seeing some exits, but also we've had a wave of new companies enter.
They just said where backlog so it hasnt been something thats immediate and I think.
Speaker 3: you know, the reality is that you are going to continue to see and more supply than demand in the short to medium terms. But I think what happens is that really plays out in the value tier. So.
The reality is that you are going to continue to see.
<unk> supply than demand in the short to medium term, but I think what happens is that really plays out in the value tier so.
Speaker 5: You're seeing a lot of competition and a lot of irrational behavior when it comes to the big pack format to lower quality products.
Youre seeing a lot of competition and a lot of irrational behavior.
When it comes to the big pack formats.
Lower quality products.
Speaker 5: But seeing opportunity early, we see opportunity still in mainstream and in premium to be able to continue to take share, to be able to grow.
But youre seeing opportunity areas, we see opportunity still in mainstream and premium to.
To be able to continue to take share to be able to grow.
Speaker 5: And while, you know, I don't know that you're seeing, you know, say, base opportunities to increase prices, I think that we are getting cost down and as you innovate, I think that's where you're able to have some pricing power. So.
And while I don't know that Youre seeing.
Based opportunities to increase prices I think that we are getting cost down and as you innovate I think that that's where you are able to have some pricing power. So for us the margin improvement the market share growth, that's really driven by innovation and innovation has really been been king for us. So I think we'll continue to see that going forward.
Speaker 5: For us, the margin improvement, the market share growth.
Speaker 5: That's really driven by innovation and innovation has really been king for us. So I think we'll continue to see that going forward and over time I think you will see that rationalization. A lot of the companies are not going to be able to continue to stay.
<unk> and over time, I think you will see that rationalization a lot of the companies are not going to be able to continue to stay.
Speaker 5: I think in the market, I still expect to be a diverse group of companies able to participate and as things eventually normalize.
In the market I still expect there'll be a diverse group of the company is able to participate.
And as things eventually normalize.
Speaker 5: I think the overall market opportunity will drastically improve.
I think the overall market opportunity will drastically improve.
Speaker 5: But we've sort of learned it doesn't make sense for us to just try to keep punting and waiting for that. We have to be able to do it now. And that's why it's been so important for us to focus on getting costs down, on growing and improving market.
But we've sort of learned it doesn't make sense for us to just try to keep punting and waiting for that and we have to be able to do it now and that's why it's been so important for us.
Focus on on getting costs down on growing and improving margins.
Got it thank you.
Just shifting gears to the international landscape.
Speaker 7: We've been seeing more media reports indicating that there's been an increase in supply going into your peer market by these media license producers. And so I guess has this affected your price and ability with respect to
Some more media reports, indicating that there's been an increase in supply going into European markets.
As Canadian license producers until I guess.
But your pricing ability with respect to X.
Parts that you've been providing to their new European partners, including cancellations at this quarter.
Speaker 7: that you've been providing to your P-im partners, including Kansatiba.com's quarter. And if you could provide an additional commentary on what you're seeing in Australia as well with respect to the pricing of the experts going into that.
If you could provide any additional commentary on what you're seeing in Australia as well with respect to <unk>.
The pricing of the exports going into that market.
Sure. So I think when we compare it to Canada certainly it's.
Speaker 3: Sure. So I think when we compare it to Canada, certainly it's
<unk>.
Speaker 5: You know, when you don't have excite tax factor and you don't have the, you know, the provincial distributors, you are looking at something that's, marty and accretive overall. And while, you know, it's not like a few years ago where you only had one or two companies that were able to ship.
When you don't have excise tax factored any you don't have the.
The provincial distributors you are looking at something Thats.
Margin accretive overall.
And while it's not like a few years ago, we only had one or two companies that were able to ship.
Speaker 5: I think it's still really about having a quality product. These markets as more suppliers have popped up also consumers have become say more sophisticated knowing what they're looking for. And I think that helps us. We like knowing that consumers are making choices based off the quality of product. Because ultimately we think that it's going to drive more momentum and more share for us.
It still is it really about having a quality product.
These markets as more suppliers of popped up also consumers have become.
More sophisticated and knowing what they're looking for and I think that helps us we we like knowing that consumers are making choices based off the quality of product because ultimately we think that that's going to drive more momentum and more share for us.
Speaker 5: So I think medical you're you're almost always likely going to have a better margin profile than any more developed adult use market. And we haven't really seen anything that reverses that trend. So whether it's Israel, Germany, Australia, we still see a lot of positives overall through flower.
So I think medical Youre, almost always likely going to have a.
Better margin profile than in a more developed adult use market.
And we haven't really seen anything that reverses that that trend so whether it's Israel, Germany, Australia, we still see a lot of positives overall can flower.
Thank you.
Speaker 1: Thank you. I'm sure no further questions at this time. Ladies and gentlemen, this does include today's conference. Thank you all for participating. You may now disconnect. Have a great day.
Thank you I'm showing no further questions at this time, ladies and gentlemen. This does conclude today's conference. Thank you. All participating you may now disconnect have a great day.
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